TRAI's costly 2G auction proposal draws operator ire

NEW DELHI | By Devidutta Tripathy and Sanjeev Choudhary

The sun rises behind a communications tower in New Delhi March 20, 2006.

Reuters/B Mathur/Files

NEW DELHI (Reuters) - The Telecom Regulatory Authority of India (TRAI) proposed a near tenfold increase in the price of 2G spectrum in a reissue of licences being stripped from mobile operators, drawing howls of protest from companies hoping to win them back.

The Supreme Court in February revoked all permits awarded in a tainted 2008 sale, which the Comptroller and Auditor General (CAG) estimated cost the government up to $34 billion by awarding licences at "unbelievably low" prices.

India's telecoms market is the world's second biggest with more than 900 million mobile phone accounts, but carriers operate under wafer-thin margins in a ferociously-competitive market that offers some of the world's cheapest call prices.

The TRAI's recommendations are not binding on the government, which has the final say on the auction rules. There is no clarity yet on the timing of the 2G spectrum auction as the June deadline to cancel the licences approaches.

The TRAI on Monday recommended an auction base price of 36.22 billion rupees for every megahertz (MHz) of nationwide spectrum in the 1800 MHz band, compared with a price of around 3.8 billion rupees in the 2008 sale.

Industry groups slammed the proposals, calling the planned base price "arbitrary, regressive and inconsistent", adding they hoped the government would "revisit the entire process".

The Indian unit of British group Vodafone (VOD.L), which is not affected by the removal of permits but wants to buy more spectrum, said the proposal would do "irreparable harm to the industry."

The proposed price is 8 percent higher than carriers paid for premium 3G spectrum in a 2010 auction.

The Indian units of Norwegian operator Telenor (TEL.OL) and Russian group Sistema (SSAq.L), as well as Idea Cellular (IDEA.NS) and Tata Teleservices, are set to lose some or all of their zonal licences. The auction would be their last chance to win back the permits.

For spectrum in the 800 MHz and 900 MHz bands, the regulator suggested a base price of 72.44 billion rupees per MHz, a proposal, which if accepted, would hit Sistema's Indian unit, which is looking to bid in the 800 MHz band.

The proposal could further hurt investor sentiment in India, already hit by policy switches.

A pending law change that could retroactively tax overseas deals involving Indian assets potentially makes Vodafone liable for more than $2 billion in taxes even after India's Supreme Court ruled in its favour.

AUCTION OPEN TO ALL

The regulator suggested that the auction should be open to all eligible carriers holding spectrum below a prescribed limit.

India is divided into 22 telecoms zones and the prescribed limit is 8 MHz for GSM carriers and 5 MHz for CDMA carriers in all zones except Delhi and Mumbai where the limit is higher.

Ahead of the regulator's announcement, shares in Bharti fell 3.7 percent, while Idea and Reliance Communications (RLCM.NS) fell more than 5 percent each amid reports that the regulator was suggesting a higher price.

All spectrum sold in the auction will be valid for 20 years, the regulator suggested. Winning carriers would be allowed to make deferred payments over 10 years.

(Editing by David Cowell)

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